MLO NMLS Mortgage Loan Origination (SAFE MLO) Exam Free Practice Exam Questions (2025 Updated)

A Suspicious Activity Report (SAR) is filed by financial institutions to report known or suspected violations of law or suspicious financial activities. The requirement to file SARs falls under the Bank Secrecy Act (BSA), which is designed to prevent money laundering, fraud, and other financial crimes. SARs must be filed with FinCEN (Financial Crimes Enforcement Network) whenever suspicious transactions are detected.

TILA (B), Gramm-Leach-Bliley Act (C), and RESPA (D) do not govern the filing of SARs.

One of the requirements for obtaining an MLO (Mortgage Loan Originator) license under the SAFE Act is that the MLO must be covered by a net worth requirement, surety bond, or must pay into a state fund. This requirement ensures that MLOs have adequate financial backing to protect consumers and the public in the event of legal or financial disputes.

A (10 hours of pre-licensing education) is incorrect because the requirement is at least 20 hours of pre-licensing education.

B (license revoked) and C (conviction) are not fully accurate as they do not align with the exact licensing rules under the SAFE Act.

An origination charge is considered a finance charge under TILA/Regulation Z and must be included in the calculation of the loan’s APR. Most third-party fees (such as credit report, recording, and transfer taxes) are not considered finance charges if they are bona fide and reasonable.

“Finance charges include all charges payable directly or indirectly by the consumer and imposed as a condition of or an incident to the extension of credit, including origination fees.”

— 12 CFR § 1026.4(a); Regulation Z

Under the USA Patriot Act, if a Suspicious Activity Report (SAR) is filed due to potential illegal activities, the MLO (Mortgage Loan Originator) is prohibited from discussing the filing of the SAR with any parties involved in the transaction, including the buyer’s agent, loan processor, or any other party. This prohibition ensures that the investigation is not compromised and that the confidentiality of the report is maintained.

Discussing the SAR with any party is considered a violation of anti-money laundering (AML) rules.

Steering occurs when a loan officer influences or directs a borrower towards a specific loan product or lender based on the compensation the loan officer will receive, rather than the borrower’s best interests. In Option C, the loan officer is steering the borrower to a loan from a particular lender to earn higher compensation, which is prohibited under the Dodd-Frank Act and TILA’s Loan Originator Compensation Rule.

Other options:

Option A describes offering a loan with higher fees, but it does not indicate that compensation is the motive, so it is not a clear example of steering.

Option B and Option D describe fair loan presentation practices.

When underwriting a loan, large or unusual deposits that are not readily identifiable (such as payroll deposits) must be sourced and documented. This is to ensure the funds are not borrowed or from an unacceptable source.

“If a bank statement reveals a large deposit that is not payroll-related, the lender must document the source of funds.”

— Fannie Mae Selling Guide, B3-4.2-02: Depository Accounts

Prepaid charges refer to certain upfront costs paid at closing. These include:

Per diem interest (D), which covers the interest from the closing date to the end of the month.

Other items like origination fees (A), credit report fees (B), and conveyance taxes (C) are not considered prepaid charges; they are typically categorized as closing costs or settlement fees.

The TILA-RESPA Integrated Disclosure (TRID) rule applies to most closed-end consumer credit transactions secured by real property, including the refinance of a condominium property. TRID mandates specific disclosures, like the Loan Estimate (LE) and Closing Disclosure (CD), to ensure transparency in the loan process.

TRID does not apply to reverse mortgages (A) or home equity lines of credit (HELOCs) (B), which are covered by other regulations.

Loans secured by a mobile home on a leased lot (D) are also generally excluded from TRID.

Regulation Z requires mortgage loan originators to present loan options that are in the consumer’s interest and for which the consumer is likely to qualify. Loan options presented must be appropriate to the consumer’s financial circumstances, not just the highest rate or those with penalties.

“Loan originators must present loan options for which the consumer likely qualifies, and which are in the consumer’s interest, including a loan with the lowest interest rate, lowest points and origination fees, and no risky features if such products are available.”

— 12 CFR § 1026.36(e), Regulation Z

The SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act) establishes federal and state licensing standards for mortgage loan originators (MLOs) and mandates that each state creates a licensing and regulatory agency to oversee mortgage companies. This agency is responsible for investigating, examining, and enforcing compliance with mortgage regulations. The act aims to ensure that mortgage companies and MLOs operate with transparency, competency, and accountability.

The SAFE Act gives regulatory bodies the authority to conduct background checks, examinations, and audits of licensed mortgage companies.

Other Acts:

TILA and RESPA focus on disclosure requirements and fair lending practices but do not specifically regulate state licensing and examinations.

HOEPA regulates high-cost loans and predatory lending practices, not licensing.

Under RESPA Section 8(b), it is illegal for any person to give or accept any portion, split, or percentage of a settlement service fee other than for services actually performed. This is known as fee splitting or unearned fee splitting.

“No person shall give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service other than for services actually performed.”

— 12 USC § 2607(b), RESPA Section 8(b)

Under TILA’s right of rescission, when there are multiple borrowers with an ownership interest in the property, each owner must receive notice of the right to rescind. If any one of them exercises the right, the loan is rescinded.

“When more than one consumer has the right to rescind, the exercise of the right by one consumer is effective as to all.”

— 12 CFR § 1026.23(a)(4), Regulation Z

Real estate brokerage activities are not a primary function of a mortgage loan originator (MLO). The MLO’s primary role is to assist consumers in taking an application (A), offering or negotiating credit terms (B), and helping consumers apply for credit (C).

Real estate brokerage activities, such as negotiating real estate transactions, are separate from the loan origination process and require different licensing and qualifications.

Under the SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act), the maximum civil penalty for each violation or failure to comply is $25,000 per act or omission. This applies to mortgage loan originators (MLOs) and others who violate licensing or regulatory requirements under the SAFE Act. Violations can include actions such as failing to obtain proper licensure or engaging in fraudulent lending practices.

The Equal Credit Opportunity Act (ECOA) prohibits discrimination based on receipt of child support, marital status, and age (provided the applicant is legally able to contract). However, it permits denial based on immigration status if it affects the creditor's ability to enforce legal rights in case of default.

“A creditor may inquire about an applicant’s immigration status and may deny credit if the applicant is not a permanent resident or otherwise not legally in the U.S. and able to contract.”

— 12 CFR § 1002.5(e), Regulation B (ECOA)

Under RESPA (Real Estate Settlement Procedures Act), settlement services include activities related to closing the mortgage loan, such as title company services and escrow agent services. These services are integral to the settlement process and ensure that the transaction is completed legally and correctly.

Flood insurance (A) is required for properties in flood zones but is not considered a settlement service.

Homeowners association fees (B) and the sale of the mortgage loan on the secondary market (D) are also not part of the settlement services.

The purpose of an appraisal in mortgage underwriting is to determine the current market value of the property being used as collateral for the loan. This is to ensure the loan amount does not exceed the value of the property and to protect the lender’s interest in case of default.

“An appraisal provides an opinion of the property’s market value, which is essential for the lender to determine if the property adequately secures the loan.”

— Fannie Mae Selling Guide, B4-1.1-03: Appraisal Report Forms and Exhibits

Under the SAFE Act, administrative and clerical duties may be performed by an individual (including a third-party underwriter) if performed at the direction and supervision of a licensed MLO. Origination activities must be done only by licensed MLOs, and company or MLO licensing is state-specific.

“Administrative or clerical tasks performed at the direction and subject to the supervision and instruction of a licensed mortgage loan originator do not require licensure.”

— SAFE Act, 12 U.S.C. § 5102(4)(C)

A second (subordinate) mortgage loan refers to a mortgage taken out after the primary mortgage and is subordinate to the first in priority of claims on the property in case of default or foreclosure. One of the most common types of subordinate mortgages is a home equity line of credit (HELOC).

HELOC allows homeowners to borrow against the equity in their home, typically after the first mortgage, making it a subordinate loan.

Other options:

Government home purchase loans (A) and conventional home purchase loans (B) are typically first mortgages.

A home equity conversion mortgage (C) is a type of reverse mortgage, which is also typically a primary loan, not a subordinate one.